Protecting Retirement Accounts

For people within the state of California having judgments against them, a judgment creditor may be permitted to recover their judgment against at least some retirement accounts they have.

This is one of my many judgment-related: I'm the Judgment referral expert, not an attorney. This article is only my opinion based on my long term experiences within California, please hire an attorney when you require legal advice.

While certain retirement accounts enjoy protection (for example, profit-sharing plans and 401Ks) as laws protect them; other accounts (For example, individual retirement accounts) may become susceptible to judgment creditors.

The judgment creditor's chance to collect from a debtor's retirement savings is dependent on what the judgment debtor's circumstances are, the type of retirement account it is, and the current balance in the account.

An type of a retirement pension plan account that is protected would be a plan which complies with the Federal-based ERISA retirement account laws.

One more kind of retirement pension plan is an account protected by ERISA (the Employee Retirement Income Security Act).

Some examples of qualified ERISA benefit plans and pension plans are group health and life insurance plans, 401(K) accounts, profit-sharing and pension retirement plans, HRAs, HSAs, disability, accidental death benefits, and dental and vision plans.

There's 2 types of judgment creditors, regular creditors and (IRS tax, child or spousal support QDRO) judgment creditors. When it concerns retirement ERISA accounts, family support or IRS judgment creditors get more power than the common judgment creditors.

California has less protection for non-ERISA retirement accounts. When the debtor's retirement account isn't qualified and covered by ERISA laws, then the judgment creditors might possibly levy the account.

Non-ERISA retirement accounts which may become susceptible include Keogh and SEP plans, IRAs (both Roth and simple), plans that do not benefit employees, 403(b) plans for employees of a public school or utility, government or church plans, and employer-only plans.

Firmly on the judgment debtors (and usually the debtor's family's) side is laws that exempt what is needed to pay for retirement age support. The amount gets shielded within the debtor's non-ERISA and IRA retirement accounts. These laws aren't very clear, and a different judge may decide in a different way with identical circumstances.

The court decides the way to split the judgment debtor's retirement assets between the debtor and their judgment creditor, basing their decision on the debtor's situation. As they are deciding the lawsuit, a judge will look at lots of facts for example:

1) Does the judgment debtor require any of their retirement account money soon?

2) Will the debtor be able to easily replace their retirement money after those funds get assigned to a judgment creditor?

3) The judgment debtor's age and health.

4) The judgment debtor's current and potential earnings.

5) The judgment debtor's current and potential cost of living.

6) The judgment debtor's chances for continuing to earn money and to work (and the debtor's education level and skills).

7) The special requirements of the judgment debtor or the debtor's family.

8) The judgment debtor's chance to save money for their retirement.

One judgment debtor example could be their $150K individual retirement account. If the judgment debtor is 38 years of age, employed and healthy, lives alone, and makes $70K per year; the debtor may not be permitted to keep their IRA. But, if the debtor is 66 years of age, suffer from heart-related problem, and do not have a job; the debtor may be permitted to keep the IRA account.

And, firmly on the judgment debtor's side, are roll-over protection-related laws. When the judgment debtor moves over their money from an ERISA account or a PRP (Private Retirement Plan) to their individual retirement account, the funds stay one hundred percent totally exempt. When the judgment debtor can prove the money in their individual retirement account were from their PRP or an ERISA account, then that judgment debtor may bypass the common "necessary for support" tests.

The state of California protects for the majority of private retirement accounts. When a judgment debtor's retirement plan doesn't meet ERISA requirements, however is qualified to be a PRP, then it may be completely shielded from any judgment creditors. Different from an IRA, a judgment debtor will be able to bypass the common "necessary for support" tests.

A PRP must be configured to be a pension plan for employees, having rules in writing limiting dipping into the money, just like an ERISA account.

A judgment debtor can't make a deposit of a large sum of money or transfer any individual retirement account money into their PRP. When the judgment debtors use their PRP money before retirement age and to fund purposes not related to their retirement (like paying personal expenses and debts), then the funds might lose their exempt from creditors status.

A drastic choice available to judgment debtors is they can go bankrupt. Bankruptcy laws may permit judgment debtors to keep as much as a million dollars in their individual retirement accounts.

Mark Shapiro - Judgment Broker - - where Judgments go and are quickly Collected!

This article was published on 03 Sep 2014 and has been viewed 665 times
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